Ma Nam v. Peaceful Consultants Ltd and Another
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HCA 2305/2008 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 2305 OF 2008 ----------------------
---------------------- Before: Deputy High Court Judge L. Chan in Court Dates of Hearing: 17 – 20, 23 August 2010 Date of Judgment: 25 August 2010 ---------------------- J U D G M E N T ---------------------- 1.This is a claim for a declaration that the 1st defendant is liable to account to the plaintiff as a constructive trustee for the proceeds of sale of a flat in a commercial building that used to be registered in the name of the 1st defendant. The plaintiff also wants equitable damages from the 1st defendant for having sold the property allegedly in breach of trust. 2.The plaintiff also claims against the 2nd defendant, who was the sole director and shareholder of the 1st defendant and allegedly a constructive trustee, for damages. The statement of claim 3.The plaintiff’s case is straightforward. He pleaded that there was an oral agreement between him and the 2nd defendant on behalf of the 1st defendant that the 1st defendant would, as the plaintiff’s nominee, purchase from a Nicekind Holdings Limited (“Nicekind”) the property and hold it on trust for the plaintiff, and the plaintiff would pay the purchase price to Nicekind. 4.Pursuant to the agreement, the plaintiff paid Nicekind HK$1.18 million and Nicekind transferred the property to the 1st defendant for this price on 23 February 2004. The 1st defendant then held the property as trustee for the plaintiff and owed the plaintiff various duties as such. 5.In early 2008 the plaintiff indicated to the defendants of his intention to sell the property. Owing to the poor health of the plaintiff’s mother, the plaintiff entrusted the tasks of arranging the sale to the defendants. 6.In about April 2008, the 2nd defendant told the plaintiff that the 2nd defendant had some friends who were interested in purchasing the property. Some time later the 2nd defendant told the plaintiff that the 2nd defendant’s friends agreed to purchase the property for HK$4.97 million and to complete it in about late May 2008. There would also be 10% of the purchase price paid as deposit and another HK$290,000 as further payment. Out of the HK$290,000, a sum of HK$150,000 would be used to pay off the outstanding maintenance charges relating to the property. The plaintiff agreed to these terms of sale and instructed the defendants to effect the sale. 7.The plaintiff later received from the 2nd defendant HK$300,000, but no more. The HK$300,000 was paid in six instalments of HK$50,000 each on 9 April, 11 April, 14 April, 30 April, 3 July and 4 July 2008. The 2nd defendant later gave the excuse that the completion was delayed by reason of certain problems concerning the fire service facilities of the property or of the building in which the property situated. 8.The plaintiff then investigated the matter in August and found that there was no agreement of sale in April 2008 at HK$4.97 million but there was an agreement of sale on 13 March 2008 at HK$4.9 million and made between the 1st defendant and a Winex Properties Limited (“Winex”). Winex, however, sub-sold the property to a CSC Properties Limited (“CSC Properties”) later at HK$5.47 million. The sale and sub-sale were completed by an assignment dated 6 June 2008. The plaintiff therefore seeks an account from the 1st defendant for the HK$4.9 million sale proceeds less the HK$300,000 already received. He also sued the 1st defendant for breach of trust and he put his loss at HK$570,000, being the difference between the sale and the sub-sale. 9.The plaintiff also sued the 2nd defendant, as the sole shareholder and director of the 1st defendant, for having dishonestly assisted the 1st defendant to commit the breaches of trust and fiduciary duties. The plaintiff holds the 2nd defendant liable for the balance of the sale proceeds at HK$4,450,000 and the difference between the sale and sub-sale at HK$570,000. The defence 10.The defendants filed a defence. The argument is also straightforward. They said that the plaintiff had in January 2004 asked the 2nd defendant for a loan of HK$3 million. The 2nd defendant agreed to advance the loan and the plaintiff procured the transfer of the property to the 1st defendant as security for the loan. The loan was advanced on or about 13 January 2004. The plaintiff and the 1st defendant acting through the 2nd defendant also entered into a provisional memorandum for transfer of the property on the same day. 11.In mid February 2004 the parties entered into a formal memorandum of sale and purchase and executed an assignment transferring the property to the 1st defendant. The transfer of the property to the 1st defendant was for it to be held as security for the HK$3 million loan. 12.The defendants further pleaded that the plaintiff told the 2nd defendant to sell the property in about February 2008 as the plaintiff needed money then. An interested buyer Winex was found and a sale and purchase agreement was made on 13 March 2008. Winex then on sold the property to CSC Properties. After deducting the principal and interest of the loan, the balance of HK$300,000 was repaid to the plaintiff. 13.Though the defendants claimed that the HK$300,000 paid to the plaintiff was the balance after deducting the loan of HK$3 million and interest thereon, there was up to the first day of the trial no evidence of any calculation of interest presented by the defendants. Indeed it is the defendants’ case that there was never any express agreement on the rate of interest payable or when would interest start to accrue. 14.The 2nd defendant had also not told the plaintiff how he calculated the amount of interest payable. The 2nd defendant had only told the plaintiff that if the plaintiff should regard the amount of interest too high, he could suggest how the interest should be calculated for the 2nd defendant’s consideration. But the plaintiff did not respond to the 2nd defendant. 15.On the first day of the trial, I insisted that the defendants should give evidence on how the interest was calculated so that in case the defendants should succeed in their defence, I would also be in a position to resolve the question of whether the 1st defendant had adequately accounted to the plaintiff the balance of the proceeds. The 2nd defendant duly provided a second supplemental witness statement on the second day of the trial showing how the interest was calculated. 16.It was also at my suggestion that the plaintiff on the second day of the trial put in an alternative claim for an account of the balance of proceeds of sale in case his claim that the 1st defendant was his trustee should fail. The plaintiff’s evidence 17.The plaintiff made a witness statement which he adopted as the evidence for the trial. He said he and the 2nd defendant were long time friends and the 2nd defendant used to be one of his best friends. They were both students of the Shanxi University. They were in the same year and shared a room at the residential hall. However, the 2nd defendant graduated one year later because of an illness. They were good friends when studying at the university. 18.The plaintiff after graduation resumed working for a ship owning company. He was posted to work in Hong Kong in the latter part of the 1980s. The 2nd defendant also came to work in Hong Kong in the latter part of 1980s. He was working for an insurance company. Both of them in due course became permanent Hong Kong residents. 19.Sometime after the 2nd defendant had come to Hong Kong, he asked the plaintiff if the business in which the plaintiff was working would be interested in the insurance policies sold by him. However, the plaintiff required highly specialized multi-jurisdictional marine insurance policy for which the 2nd defendant’s employer was not involved. There was thus no business between them. 20.In 1999 the 2nd defendant returned to work in Shenzhen. In about 2002 the 2nd defendant started his own real estate business in Beijing. His business prospered and he quitted his job in the insurance company in 2003. 21.The plaintiff had a long-term relationship with a Miss Hau. They had two daughters and a son. However, they parted ways in about 2004. 22.Regarding the property in question, it was owned by Nicekind until about February 2004. Nicekind had three directors and shareholders. They were the plaintiff, a Mr Hou and a Mr Cheung. The plaintiff owned 80% of the shares of Nicekind. Hou had given the plaintiff an authorization to take over Hou’s rights and obligations in Nicekind and agreed to forego all rights of objection and recourse against the plaintiff regarding the affairs of Nicekind. Cheung had simply disappeared since about 1997 or 1998. 23.Nicekind had mortgaged the property to a bank. In about late 2003 and early 2004, the mortgage bank chased Nicekind for mortgage payment and threatened to exercise the mortgagee’s rights as well as calling on the plaintiff to honour his personal guarantee. Nicekind, however, did not have sufficient funds to pay the bank. The plaintiff then decided to use his own funds to purchase the property from Nicekind since a forced sale would only fetch a low price. 24.At about the same time the plaintiff and his girlfriend Miss Hau were separating. Miss Hau persistently asked him for separation money on top of what he had already paid her over the years. In order to conceal his assets from Miss Hau, he wanted to purchase the property from Nicekind in the name of a trusted friend. He believed the 2nd defendant could hold the property for him. The 2nd defendant also had a divorce and had a daughter with him. 25.Given their similarities in upbringing and family circumstances, the plaintiff and the 2nd defendant had a good understanding of each other and their daughters were also friends. The plaintiff thought that if he should ask the 2nd defendant to hold the property on trust for him and in case he should pass away, the 2nd defendant would know what to provide for his daughter. 26.The plaintiff then procured Nicekind to enter into a memorandum with the 1st defendant on 3 February 2004 agreeing to sell the property to the 1st defendant at HK$1.18 million. The 2nd defendant was the sole director and shareholder of the 1st defendant. This was followed by an assignment dated 19 February whereby Nicekind assigned the property to the 1st defendant for HK$1.18 million. This sum was paid by the plaintiff. The mortgage bank also made a deed of release to discharge the property from the mortgage. The trust arrangement was, however, not evidenced in writing. The plaintiff saw little risk in the absence of such evidence. The 2nd defendant had been his best friend for more than two decades and he had a lot of trust in the 2nd defendant. 27.In about early 2008, the plaintiff told the 2nd defendant that he wanted to send his daughter to the United States for education. He intended to sell the property to raise funds for this purpose. In about late March 2008, his mother suffered a stroke for the second time. The plaintiff therefore was unable to supervise closely the intended sale. He left the task of the sale to the defendants. He told the 2nd defendant that the market value of the property was about HK$5.2 to HK$5.3 million and told the 2nd defendant to accept an offer in that region. He came to this view because of the transaction records posted at the building management office which were in the region of HK$3,000 per square foot and the property had 1,760 square feet in area. He told the 2nd defendant that he owed the management company management fees at around HK$150,000 and that might have to be settled before the sale. 28.In about March or April 2008 the 2nd defendant told the plaintiff that the 2nd defendant had a friend who was interested in buying the property. After some exchanges, the 2nd defendant said that his friend was agreeable to buy the property at HK$4.97 million with completion in about late May 2008. A 10% deposit would be paid to the 1st defendant and the 1st defendant could use part of the deposit to clear the outstanding management fees. The plaintiff initially thought that the price was on the low side. However, upon the 2nd defendant’s persuasion, he agreed to the terms in about April 2008 and told the 2nd defendant to proceed with the sale. 29.In about late April the 2nd defendant phoned and told him that the purchaser wanted to move into the property for refurbishment before completion in May. He then moved his belongings away from the property. 30.He enquired with the 2nd defendant from time to time on the sale and asked him to pay over the proceeds. However, the 2nd defendant only gave him HK$300,000 by six instalments of HK$50,000 each on the six dates set out above. He thought the situation was unusual as completion should have taken place in May 2008. However, the 2nd defendant gave him excuses including one that completion was delayed because of problems of the fire service facilities. 31.His mother passed away in June 2008. After dealing with his mother’s death and making arrangements for his father, he then conducted some investigations on the sale in August 2008 and pressed the 2nd defendant for an explanation. His investigation showed that the 1st defendant had entered into a sale and purchase agreement on 13 March 2008 with Winex, to sell the property to Winex at HK$4.9 million and not HK$4.97 million. Winex later sub-sold the property to CSC Properties for HK$5.47 million. 32.The 1st defendant on 6 June 2008 assigned the property to CSC Properties. The assignment showed that the 1st defendant had received HK$4.9 million from Winex. He called the 2nd defendant repeatedly but the 2nd defendant was evasive. Once in August 2008 the 2nd defendant admitted of having taken the proceeds of the property to assist a friend who had suffered losses in a project in Hainan. The 2nd defendant promised to return the money in a few days but never did. The plaintiff called the 2nd defendant again in mid August 2008, but the 2nd defendant was not sure when he would return the money. The plaintiff then started this action against the defendants. 33.To complete the picture, I also mention that the plaintiff had obtained on 13 November 2008 a worldwide Mareva injunction against the defendants up to a limit of HK$5.02 million. The injunction was discharged on 5 January 2009 because the plaintiff could not provide a HK$700,000 bank guarantee that he had undertaken to give upon the grant of the injunction. The defendants’ evidence 34.The 2nd defendant filed three witness statements which he adopted as his evidence at the trial. In his first witness statement he agreed that he came to know the plaintiff in 1983 at Shanxi University. They shared the same room for two years, but they were in different years in the university and had not attended the same class. They were not particularly close to each other. The plaintiff left the university in 1985 and the 2nd defendant graduated in 1986. 35.The 2nd defendant came to work in Hong Kong at an insurance company in 1989. For the purpose of his business, he contacted some former classmates who were working in trading companies. He learned that the plaintiff was also in Hong Kong working in the shipping and trading business. At that time the plaintiff was his only friend working in Hong Kong and was working in a field with which his employer could do business. He then obtained the plaintiff’s phone number and phoned the plaintiff a number of times, but the plaintiff refused to meet him every time. He therefore did not contact the plaintiff again. 36.There was in May 2002 a gathering in their university for the centennial celebration. However, the plaintiff was not keen to communicate with him and he also did not give the plaintiff his phone number. There was not much communication between them. 37.It was until August 2002 that the plaintiff learned from the 2nd defendant’s former classmate a Mr Sumikawa that the 2nd defendant was doing quite well in his real estate business in Beijing. The plaintiff then asked Sumikawa for the 2nd defendant’s phone number. However, Sumikawa told the plaintiff that the 2nd defendant’s impression of him was not good because he had refused to meet the 2nd defendant when the 2nd defendant was in need of help upon coming to Hong Kong. The plaintiff told Sumikawa that he did not mean to be unhelpful. He there and then phoned the 2nd defendant and explained that he was busily handling a litigation at the time when the 2nd defendant came to Hong Kong. 38.The plaintiff, after making contact with the 2nd defendant, then phoned the 2nd defendant a number of times trying to have a meeting with the 2nd defendant. The 2nd defendant went to Shenzhen at the end of 2002 for business and the plaintiff went from Hong Kong to meet him there. There was then SARS during the first half of 2003. In the second half of 2003, the plaintiff went to Beijing and Shenzhen a number of times and visited the 2nd defendant. The plaintiff also took his daughter to Shenzhen to meet with the 2nd defendant’s daughter. The plaintiff also provided the 2nd defendant with chauffeured private car to cross the border from Shenzhen to Hong Kong many times. Their friendship had indeed improved in those months. 39.In early January 2004 the plaintiff phoned the 2nd defendant asking for a loan of HK$3 million. The plaintiff said the money would be used in his fund management company and he would repay it in three months. The plaintiff phoned the 2nd defendant again on the next day and offered to transfer the property in question from his company to a company of the 2nd defendant as security for the loan. The plaintiff further said that the property had a worth of over HK$5 million. The 2nd defendant then agreed to advance the loan to him. 40.On 12 January 2004 the plaintiff phoned the 2nd defendant again asking the 2nd defendant to come to Hong Kong to deal with the procedure for transfer of the property. However, the 2nd defendant was busy and could not come here. The plaintiff said he needed the fund urgently and would go to Beijing to sign the document with the 2nd defendant to transfer the property. The plaintiff then at the 2nd defendant’s request faxed the draft memorandum of agreement for the 2nd defendant’s perusal. The 2nd defendant found that the memorandum was sent by a Miss Ng of Messrs Siao, Wen & Leung to the plaintiff and stated that the price for the sale of the property was HK$3 million. He thought that the memorandum had no problem. 41.The plaintiff arrived in Beijing on 13 January and signed the memorandum with the 2nd defendant in the presence of the 2nd defendant’s colleague Mao Jianguo. The 2nd defendant then gave the plaintiff a cheque for HK$3 million. The cheque was cleared on the next day. The 2nd defendant came to Hong Kong for business in February 2004. He and the plaintiff then went to the office of Siao, Wen & Leung to sign the formal documents for the transfer of the property. The staff of Siao, Wen & Leung did not tell the 2nd defendant any trust arrangement over the property. 42.When the 2nd defendant was signing the documents, he found that the consideration for the transfer was stated at HK$1.18 million rather than HK$3 million. He asked the plaintiff why and was told that a higher purchase price would attract higher legal costs and other expenses. The 2nd defendant was not familiar with conveyancing procedure in Hong Kong and he fully relied on the plaintiff and accepted the plaintiff’s explanation. He denied any trust arrangement over the property. He said the property was just transferred to him as security for the HK$3 million loan. 43.In May 2004 the 2nd defendant asked the plaintiff for repayment of the loan, but the plaintiff delayed with excuses. Later on the plaintiff even refused to take his phone call or reply to the message he left with the plaintiff’s phone. The plaintiff had previously given him and a friend of his, Mr Li Weiping, a name card bearing the name of the plaintiff’s employer Asia Assets Limited. However, the person receiving the phone at the number printed on the card replied that there was no such person as the plaintiff. A search at the Companies Registry by the defendants’ solicitors showed that this company was only incorporated in Hong Kong on 12 September 2005. 44.The plaintiff phoned Siao, Wen & Leung and was told that the procedure for transfer of the property had been completed. He later went to Siao, Wen & Leung and obtained the memorandum of sale dated 3 February 2004 and the assignment dated 23 February 2004. 45.From May 2004 to the end of 2006, the 2nd defendant phoned the plaintiff for more than a hundred times but did not receive a single reply. He then asked a friend in Hong Kong, one Madam Fong, to have a check on the property. Fong told him that the property had been locked and there were many letters and postal packets laying at the doorsteps not attended to which showed that no one had been to the property for a long time. Fong also told the 2nd defendant that her enquiry with nearby estate agents revealed that the market price of the property was at about HK$1.6 million which was much lower than the loan the 2nd defendant advanced to the plaintiff. 46.At the end of 2006 the 2nd defendant eventually received a phone call from the plaintiff who explained that he had been forbidden to leave Spain for certain fund management crime. He had just come back to Hong Kong and wanted to meet the 2nd defendant. Shortly afterwards, they met in the lobby of a hotel in Admiralty, Hong Kong. At the meeting the 2nd defendant asked the plaintiff when he could repay the loan. He also told the plaintiff that he intended to sell the property to get back the loan. The plaintiff promised that he would repay the loan in a few months and to pay all the interests in a year. 47.The plaintiff also said he had just separated with his girlfriend and had no place to live or to keep his belongings. He needed the use of the property. The 2nd defendant did not object out of sympathy but later found that the person living at the property was not the plaintiff. The plaintiff also asked the 2nd defendant for another loan of HK$9 million to be repaid within a week. The plaintiff said with this loan the vetting of his investment fund would be completed smoothly and he could then repay all the loans from the 2nd defendant. But the 2nd defendant declined the request. 48.On the following few days the plaintiff phoned the 2nd defendant many times asking for the loan, but the 2nd defendant did not accede to his request. 49.At the beginning of 2007 the 2nd defendant phoned the plaintiff twice seeking repayment. The plaintiff promised that he would repay very soon. Later on the 2nd defendant was very busy with his business and seldom came to Hong Kong. There was also no further information from the plaintiff. 50.In February 2008 the plaintiff again phoned the 2nd defendant and asked for an urgent loan of HK$200,000. The 2nd defendant declined, but the plaintiff phoned him repeatedly for the loan. The 2nd defendant told the plaintiff that the Hong Kong property market was thriving. The 2nd defendant wanted to sell the property. After the sale, the 2nd defendant could lend HK$200,000 to the plaintiff. The plaintiff then agreed and said he would enquire about the market price. He later told the 2nd defendant that the market price of the property ranged between 5 to 5.52 million. He said he would look for a buyer. 51.The 2nd defendant also entrusted a friend, one Madam Hau, to place the property with an estate agent. The agent found a buyer who agreed to buy it at HK$4.9 million. Madam Hau also expressed interest to buy the property at the same price for investment purpose. The 2nd defendant agreed to sell the property to Madam Hau and her husband at this price. The 2nd defendant then told the plaintiff not to look for a buyer as he had already sold the property at HK$4.9 million. The 2nd defendant also asked the plaintiff to request the plaintiff’s friend to vacate from the property. 52.In March 2008 the plaintiff again asked the 2nd defendant for a loan of HK$2 million promising to repay within half a year. The 2nd defendant did not trust the plaintiff any more and just prevaricated by saying that he would try to arrange it after receiving the sale proceeds. 53.The sale of the property was completed on 6 June and the 1st defendant received on 11 June the balance of the purchase price at HK$4,441,010.54 with HK$50,000 still held by the solicitors for apportionment of expenses and HK$200,000 initial deposit already received on 13 March 2008. A sum of HK$193,839.46 had also been disbursed to release a charge for outstanding management expenses from a further payment previously received. After paying the apportionment account, the balance of HK$47,330 was also received by the 1st defendant on 30 July 2008. 54.Out of the initial deposit of HK$200,000 received on 13 March 2008 and the further payment received on 11 June 2008, the 2nd defendant paid the plaintiff six sums of HK$50,000 each on 9 April, 11 April, 14 April, 30 April, 3 July and 4 July 2008. The 2nd defendant only paid HK$50,000 each time because that was the limit imposed by the bank for transfer by phone. 55.The plaintiff, after having received the HK$300,000, still pestered the 2nd defendant repeatedly for the HK$2 million loan. He even phoned the 2nd defendant for more than ten times in a day. The 2nd defendant later refused to take any of his calls. 56.In the first supplemental witness statement, the 2nd defendant further said that the plaintiff, after disappearing since May 2004, had contacted him in July 2006 rather than the end of 2006. He further said that the plaintiff had in the phone call explained that he had disappeared because he had been forbidden to leave Spain. The plaintiff also apologized for not having repaid the HK$3 million loan. He further offered to arrange a re-entry certificate to be issued by the Mainland authorities to the 2nd defendant. The 2nd defendant then faxed his personal information to the plaintiff for this purpose. 57.The 2nd defendant, as a result of my request, made the second supplemental witness statement on the first day of trial to deal with the amount of interest charged. He said when the plaintiff asked for the loan in January 2004, it was meant to last for only three months. Since it was a short term loan, he therefore did not specifically ask for any interest. 58.In a meeting after the plaintiff’s phone call in July 2006, the plaintiff promised to repay the loan within a few months and to pay off all the interests within a year. The 2nd defendant agreed to this. They, however, did not discuss the rate of interest. 59.The 2nd defendant received a total of HK$4,688,340.54 net proceeds of sale and repaid HK$300,000 to the plaintiff. He calculated the interest at 10% per annum as that was the average rate of interest his stock broker would have charged him for margin facilities at the material time. He regarded that as a reasonable rate. At 10% per annum for four and a half years, the amount of interest on a HK$3 million loan is HK$1.35 million. He should have repaid the plaintiff HK$288,388. He rounded it up to HK$300,000. 60.After he had paid the HK$300,000 to the plaintiff, the plaintiff still pestered him with the request for a HK$2 million loan. He then told the plaintiff that if the plaintiff should consider the amount of interest too high, the plaintiff could propose a calculation for his consideration. But the plaintiff did not do so and did not contact him over the question of interest. He therefore thought that the plaintiff had agreed that his calculation of interest was reasonable. 61.The defendants also called Mr Sumikawa, Mr Mao Jianguo and Mr Li Weiping to give evidence. Mr Sumikawa also studied in the Shanxi University. His relationship with the 2nd defendant was very good. Whenever he was in Shanghai or Beijing, he would have ball games with the 2nd defendant during festivals. They were always in touch even when Sumikawa was in Japan. On the other hand, Sumikawa and the plaintiff had not been in touch since graduation. It was one day in August 2002 that the plaintiff suddenly called him and invited him to lunch. He did not know how the defendant had obtained his phone number. 62.He met the plaintiff in a restaurant in Wan Chai. They chatted about their classmates. When the 2nd defendant was being mentioned, the plaintiff said that he had not been in touch with the 2nd defendant for over 10 years. Sumikawa told him that the 2nd defendant did not like him. The reason being that when the 2nd defendant had just come to Hong Kong and needed friends, he had repeatedly used excuses not to meet the 2nd defendant. The 2nd defendant therefore took the view that he paid no regard to the friendship amongst classmates. The plaintiff defended himself and said that there was no such thing. He then asked Sumikawa to phone the 2nd defendant and he gave an explanation to the 2nd defendant on the phone. He then asked Sumikawa for the 2nd defendant’s phone number. 63.In cross-examination, counsel for the plaintiff only put to Sumikawa that the plaintiff had the 2nd defendant’s phone number which Sumikawa said that he did not know. But Sumikawa maintained his evidence that the plaintiff had asked him for the 2nd defendant’s phone number. There was however no challenge to Sumikawa’s other evidence that the plaintiff had said that he had not been in touch with the 2nd defendant for over 10 years, that Sumikawa had told the plaintiff why the 2nd defendant was unhappy with the plaintiff and that the plaintiff had used Sumikawa’s phone to explain away the cause of the 2nd defendant’s dissatisfaction about him. 64.Mr Mao Jianguo said in his witness statement that he and the 2nd defendant were classmates of Shanxi University and were good friends. He went to Beijing in 1999 to work for the 2nd defendant. He has been the 2nd defendant’s assistant up till now and they work in the same place. He also knew the plaintiff, but had no contact with him after graduation. He and the 2nd defendant had met the plaintiff once in Shenzhen at the end of 2002. 65.He learnt about the HK$3 million loan from the 2nd defendant who told him that the plaintiff had asked the 2nd defendant in about December 2003 to January 2004 for this loan and promised to repay the 2nd defendant within three months. The plaintiff also suggested using his property in Hong Kong as security for the loan. The 2nd defendant estimated the market value of the property at about HK$3 million. On 12 January 2004 Mao saw the agreement faxed by the plaintiff to their office in Beijing. It provided that the plaintiff would transfer the property to the 2nd defendant for the price of HK$3 million. 66.On 13 January 2004 the plaintiff went to their office in Beijing and signed a photocopy of the fax copy contract in his presence. The plaintiff said that that was only a provisional agreement and a formal agreement would be signed when the 2nd defendant came to Hong Kong. After signing the contract, the 2nd defendant gave the plaintiff a cheque for HK$3 million. The plaintiff then hurried to leave. 67.Mao and the 2nd defendant accompanied him on the way out. When they walked past the conference room, they went in for a look. There was an army sword in the room which was a gift from the 2nd defendant’s classmates at the university. The plaintiff said that he was interested in collecting army swords. The 2nd defendant then gave the sword to the plaintiff. Mao also wrapped it up for the plaintiff to carry it away. 68.Counsel for the plaintiff only put to Mao that he was not present at the meeting when the plaintiff and the 2nd defendant signed the contract to which Mao disagreed. There was no challenge to Mao’s evidence that he had heard from the 2nd defendant in late 2003 or early January 2004 that the plaintiff asked the 2nd defendant for a loan of HK$3 million. 69.Mr Li Weiping said that he came to know the 2nd defendant in 1988 in Shenzhen through the introduction of some classmates of Shanxi University. In October 2002 the 2nd defendant introduced the plaintiff to him and they exchanged name cards. In mid 2004 he learned from the 2nd defendant that the plaintiff had borrowed HK$3 million from the 2nd defendant and the plaintiff used his property in Hong Kong as security for the loan. But the plaintiff later did not repay and the 2nd defendant was unable to contact the plaintiff. 70.Li had also tried to contact the plaintiff for the 2nd defendant by phoning the number on the plaintiff’s name card. But the person answering the call said that there was no such person. His evidence was not challenged. The plaintiff’s evidence on the alleged HK$3 million loan 71.The 2nd defendant had in his affirmation in opposition to the Mareva injunction set forth his case that there was a HK$3 million loan advanced by him through a cheque drawn by him. The plaintiff did not file any affirmation to respond to that, but he dealt with this allegation in his witness statement which was filed some six months after the 2nd defendant’s affirmation. 72.The plaintiff denied in his witness statement that the HK$3 million cheque was for a loan. He said the 2nd defendant paid him this HK$3 million as reimbursement for certain expensive items which he had purchased for the 2nd defendant. He also produced a provisional memorandum of agreement which was the same as the one produced by the 2nd defendant, save that the price was at HK$1.18 million instead of HK$3 million and the signatures and chops appeared differently. 73.He disputed the authenticity of the copy produced by the 2nd defendant. He also maintained that he had not disappeared from May 2004 to mid 2006. He relied on certain documents purportedly to prove his presence in Hong Kong during this period. But these documents cannot serve as such proof. He produced a credit card statement which showed that he was incurring expenses on his credit card in Hong Kong between January and February 2006, but the statement did not cover the other part of the period from May 2004 to July 2006. 74.The 2nd defendant’s solicitors then administered interrogatories on him on the expensive items he had bought for the 2nd defendant which had a total worth of HK$3 million. He said on affirmation that the expensive items were four items. 75.The first item was a traditional Chinese landscape painting by the artist Chen Zizhuang, also known as Shi Hu, and the size was about 30 cm x 50 cm. He acquired it from a friend in early 1990s for RMB50,000 and he estimated it to have a worth of about RMB600,000 to RMB1,000,000 when he gave it to the 2nd defendant. 76.The second item was a Chinese Shi Gu Wen calligraphy by the calligrapher, painter and poet Wu Changshuo and the size was about 30 cm x 130 cm. It was given to him by a friend in the 1980s. He estimated its worth in the region of RMB400,000 to RMB1,000,000 when he gave it to the 2nd defendant. 77.The third item was a Changhua “chicken blood” stone which was a precious stone from Yu Yan Mountain, Changhua, Lin An, Zhejiang and the weight was about 2.5 kg to 3 kg. He bought it in the early 1990s from a person introduced by a friend at around RMB130,000 and he estimated its worth at RMB1,000,000 when he handed it to the 2nd defendant. 78.The fourth item was a Shoushan Tianhuang stone which was a precious stone from Shoushan, Jin An, Fuzhou, Fujian and the size was about 2.5 cm x 3 cm x 8 cm. He acquired it by exchange with a friend in the 1980s and estimated its worth at more than RMB1,000,000 when he gave it to the 2nd defendant. 79.There were also some less valuable items including an agate ring and some other paintings by painters in Taiwan. 80.He said he had 30 years’ experience in dealing with and collecting such items. 81.He said he handed over the painting and the calligraphy to the 2nd defendant at a hotel in Admiralty in October or November 2003. He handed over the “chicken blood” stone to the 2nd defendant on another occasion, also in a hotel in Admiralty in October or November 2003. He handed over the Tianhuang stone on a third occasion in a coffee shop in Admiralty also in October or November 2003. He also said he gave these items to the 2nd defendant because the 2nd defendant told him in late 2003 that certain important persons of the Mainland would visit Hong Kong and the 2nd defendant would like to give them some valuable gifts. He thought that the 2nd defendant was referring to some Mainland government officials. The 2nd defendant’s travel records in October/November 2003 82.In order to rebut the plaintiff’s case that the HK$3 million was for the alleged expensive items given to him in October or November 2003, the 2nd defendant produced the records of his movements through the border checkpoints of the Immigration Department. Though the 2nd defendant had used different travel documents in moving across the checkpoints, I am satisfied that the records are comprehensive and include all his coming in and going out of Hong Kong regardless of the type of travel document he used. 83.The travel records showed that the 2nd defendant had come to Hong Kong for only once during August 2003 to November 2003, namely from 3 pm on 25 November 2003 to 7 pm on 26 November 2003. Analysis and findings 84.I note from the travel records of the 2nd defendant that the 2nd defendant had only come here on one occasion during October to November 2003. This is against the plaintiff’s case that he and the 2nd defendant had met on three occasions in Admiralty in October or November 2003 during which occasions the plaintiff had allegedly handed over the very expensive items to the 2nd defendant. 85.The plaintiff’s estimate of the total market value of these items had a wide range, but he did not say a word on how he and the 2nd defendant had agreed that the 2nd defendant only needed to pay him HK$3 million for the items. In so agreeing he might have given the 2nd defendant a discount of HK$1 million, and I cannot see any reason why he should have given the 2nd defendant such huge discount. I appreciate that in early 2004, RMB was about 5% cheaper than Hong Kong dollars. A close friendship may explain some gestures of generosity but not to such an extent, particularly, when there is no suggestion that D2 could not pay the true market price. 86.Furthermore, the plaintiff said in his witness statement that he had purchased these items on behalf of the 2nd defendant, but in his affirmation to answer the interrogatories, he instead said that he had acquired these items by purchase, gift and exchange in the 1980s and 1990s. These items were thus precious items in his collection, rather than items that he bought on behalf of the 2nd defendant. 87.There is also the unchallenged evidence of Sumikawa that the plaintiff had said to Sumikawa that the plaintiff and the 2nd defendant had not met for over 10 years and Sumikawa told the plaintiff why the 2nd defendant was unhappy with the plaintiff. This contradicted the plaintiff’s case of a very close friendship with the 2nd defendant lasting for over 20 years. 88.If I accept Sumikawa’s unchallenged evidence that the plaintiff and the 2nd defendant had not met each other since the plaintiff’s graduation in 1985 until August 2002, then the relationship between the plaintiff and the 2nd defendant in late 2003 to 2004 might not have been close enough for the plaintiff to just hand over precious items with a worth of more than HK$3 million to the 2nd defendant on credit. There is also the coincidence of the payment by the 2nd defendant to the plaintiff of a cheque for HK$3 million and the signing of the provisional memorandum for transfer of the property to the 1st defendant on the same occasion. The plaintiff said that one had nothing to do with the other. However, the 2nd defendant’s case is that the provisional memorandum was to secure the HK$3 million loan. 89.Furthermore, when the plaintiff applied for the Mareva injunction, he made no mention of his sale of the expensive items to the 2nd defendant in October or November 2003 for which he was paid HK$3 million on about 13 January 2004 and he also signed the provisional memorandum with the 1st defendant for the transfer of the property on the same occasion. I do find this strange as such sale of expensive items by the plaintiff to the 2nd defendant was not common even on the plaintiff’s case. The plaintiff tried to explain this away in the witness-box by saying that he regarded the sale of expensive items as closed as he had already been paid. But I find this explanation unsatisfactory. It was an extraordinary transaction and the payment coincided with the making of the provisional agreement. 90.There is also the unchallenged evidence of Li Weiping that the 2nd defendant had told him in mid 2004 that the 2nd defendant had lent HK$3 million to the plaintiff. If there were no such loan, but that the 1st defendant were holding the property on trust for the plaintiff, then what the 2nd defendant had told Li Weiping was untrue and could only indicate the 2nd defendant’s plan back in mid 2004 to make out a false case of a HK$3 million loan against the plaintiff. If that was the case, then why did the 2nd defendant not act upon the false loan until early 2008 as Li Weiping might just mention this loan to the plaintiff at any time and expose the 2nd defendant’s plan against the plaintiff? 91.There was also the unchallenged evidence of Mao Jianguo that the 2nd defendant had told him in late 2003 or early January 2004 that the plaintiff was asking the 2nd defendant for a HK$3 million loan. Having heard the 2nd defendant giving evidence in the witness-box, I do not think he has so devious a mind that he would have been planning a false loan of HK$3 million when he had to pay the plaintiff this sum of money for some expensive items of art and would be using his company to hold a property on trust for the plaintiff. I find this too far-fetched. But that is what is suggested by the plaintiff’s case when viewed with the unchallenged evidence of Mao. 92.Furthermore, as pointed out by counsel for the defendants that on the plaintiff’s case, there would not have been a need for the plaintiff and the 1st defendant to enter into the provisional memorandum on about 13 January 2004 in Beijing. Even if the plaintiff wanted the transfer of the property to appear as a sale so as to ward off the demands of Madam Hau, it was still unnecessary to enter into the provisional memorandum. The formal memorandum and the assignment executed at the office of Siao, Wen & Leung were good enough. The making of the provisional agreement in Beijing and the handing over by the 2nd defendant to the plaintiff of the cheque for HK$3 million made the 2nd defendant’s case much more credible than the plaintiff’s. Counsel for the defendants also raised several other minor points, but I do not think these are important points. 93.Counsel also referred to the plaintiff’s name card which stated that he was working for a company Asia Assets Limited at the end of 2002 when he met the 2nd defendant and Li Weiping. The plaintiff’s solicitors were unable to locate any registration of this company made at that time. However, there is no clear evidence whether the telephone enquiries by the 2nd defendant and Li Weiping to this company were made before or after the incorporation in Hong Kong of a company by this name. If before, there is also no evidence whether the persons taking their calls had uttered the name of this company or admitted that the telephone number was of this company. It may well be that this company has been deregistered and for some reason records were not available to the search of the defendants’ solicitors. I would make no finding on this, but I do not think that the plaintiff would have back in the end of 2002 masqueraded as an employee of a company that did not even exist. I also note that the name card has the name, address, phone and fax numbers and email address of the company in both Chinese and English. 94.I would also consider the arguments of counsel for the plaintiff. The first point is the lack of any documentary evidence of demand by the 2nd defendant to the plaintiff for repayment. This was so despite the 2nd defendant being unhappy about the plaintiff disappearing for two years from May 2004 and not responding to more than a hundred telephone calls made by the 2nd defendant. I think this point has some merits. However, the loan was not totally unsecured. Secondly, if the 2nd defendant could not contact the plaintiff on the phone, I do not know what use there would have been to send him demand letters. If the 2nd defendant wanted to utilize the security in the property, he could have done so at any time. He did not then know that the plaintiff would deny the loan. Demand letters would not have made his position any or much better. I do not think the lack of demand letters in the circumstances would weigh against the 2nd defendant. 95.Counsel then referred to the lack of efforts by the 2nd defendant to chase the plaintiff for repayment in 2007 and suggested that this was consistent with the plaintiff’s case of a trust holding. However, the plaintiff does not challenge Li’s evidence that the 2nd defendant had already told Li about the loan in mid 2004. Even if this point of the plaintiff may appear to have some merits, it cannot outweigh the many points that I have observed above including the need to make the provisional memorandum, the coincidence of the handing over of the HK$3 million cheque at the same time and the records of the defendant’s travel in and out of Hong Kong. 96.Counsel also said that if the property was a security for the loan, then it was extraordinary for the 2nd defendant to have paid the plaintiff the HK$200,000 deposit before the 2nd defendant had recovered the full repayment of the loan and interest from the proceeds. I do not think this was a big risk for the 2nd defendant. HK$200,000 was a small sum compared with the total net proceeds. He no doubt could have waited until the loan and interest were fully recovered, but if he should have chosen to be more responsive and benevolent to the plaintiff’s needs and to pay him the initial deposit of HK$200,000 earlier, he was not running a great risk. 97.Counsel also attacked the 2nd defendant for having paid HK$100,000 to the plaintiff in July 2008 before receiving the final sum of HK$47,330. I think this is a relatively small sum and would not have weighed significantly in the mind of the 2nd defendant at that time. 98.Counsel also argued that if the transfer of the property was indeed to create a charge to secure the loan, then the parties could have made a mortgage. However, this was never raised in cross-examination and I would not want to go into it now. I also note that regardless of whether it was a charge or a trust, there is no dispute that the whole arrangement was made and directed by the plaintiff. Judgment 99.By reason of the above analyses and findings and my observations of the demeanour of the witnesses, I accept the evidence of the 2nd defendant, Mr Sumikawa, Mr Mao Jianguo and Mr Li Weiping and reject the evidence of the plaintiff to the extent that it is in conflict with the defendants’ evidence. 100.I reject the plaintiff’s case of a trust in relation to the holding of the property by the 1st defendant. I dismiss the plaintiff’s claim against the 2nd defendant for knowing assistance of breach of trust by the 1st defendant. 101.I accept and find that the 2nd defendant had advanced a loan of HK$3 million to the plaintiff on about 13 January 2004 and the property was transferred to the 1st defendant as security for the loan. Interest 102.The plaintiff accepts that he would have to pay interest if I should find for a loan and the transfer of the property as security for the loan[1]. I still have to decide the rate and the period in which interest would accrue. 103.For the first three months, I would not award any interest as there was never any intention of the 2nd defendant to charge interest for this period. I would not imply interest for this period retrospectively when the parties did not so intend. I think the plaintiff’s agreement in July 2006 to pay interest was in respect of the period of delay after the first three months. The evidence is not clear enough to show that the first three months would also be covered. Interest should then accrue up to 11 June 2008 when the 1st defendant received the bulk of the proceeds. 104.I would not hold the 2nd defendant to the original date of completion on 6 May 2008 as completion was delayed by the existence of a charge for management fees. The release of the charge was only registered on 15 May 2008 by the solicitors of the building manager and completion could only take place thereafter. 105.Regarding the rate of interest, I would allow 2% over the best lending rate of Hong Kong Bank from time to time. When the plaintiff reappeared in July 2006 and contacted the 2nd defendant, the 2nd defendant’s anger had substantially subsided. I do not think he would have been so harsh to charge a rate higher than 2% over the best lending rate of Hong Kong Bank. That is already a commercial rate charged by banks on many consumer mortgages. I would not accept an average rate of 10%, which is too high for the period in question. 106.I leave the parties to calculate how much should be the interest for the period and rate I have ordered. I also grant liberty to apply to the parties for ascertaining the amount of interest in case of disagreement. Costs order nisi 107.The 2nd defendant received the bulk of proceeds of sale on 11 June 2008 plus a small sum on 30 July 2008. He only returned HK$300,000 to the plaintiff without any accounting. He maintained this attitude up to the start of the trial. But for my insistence of an account from him on how interest was calculated and my suggestion to the plaintiff to put in an alternative case for an account, I would not have known how the 2nd defendant had calculated the amount of interest. He would also not have the need to justify how he had engulfed the sum of HK$4,388,340.54 out of the net proceeds. I do not approve of such attitude. 108.Regarding the plaintiff, he has basically lost the case. But for my suggestion that he should put in an alternative case for an account, he would have lost completely. The trial was also used to resolve the question of whether there was a loan or whether there was a trust. 109.In these premises, I make a costs order nisi that there be no order as to costs from the start of the action up to and including the first day of trial. The costs thereafter, that is from the second day of trial, be paid by the plaintiff to the defendants, but would not include the costs for the second supplemental witness statement of the 2nd defendant. 110.I note that the costs of the Mareva injunction have already been dealt with earlier.
Mr George Hui, instructed by Messrs Cheung & Yip, for the Plaintiff Mr Laurence Li, instructed by Messrs Wilkinson & Grist, for the 1st and 2nd Defendants [1] Chitty on Contracts, 30th Edn. Para. 38-267 |
Further hearings and rulings under HCA 2305/2008